Empty grass seed bags and other remnants of unfinished work remain at the Delaware Sports Complex in Middletown after owners declared bankruptcy on the multi-million project.(Photo: Jerry Smith/The News Journal)Buy Photo

Delaware Sports Complex LLC appears out, but it remains to be seen what will happen to the property in Middletown originally slated to be a sports park.

A ruling by a judge in U.S. Bankruptcy Court late Monday allows the town of Middletown to choose another company to continue building a sports complex on Levels Road or revert the land back to its original state.

Judge Kevin Gross concluded that Delaware Sports Complex LLC defaulted on its lease and that the town properly terminated the lease, meaning the town has complete control over the land.

After a brief court session in the bankruptcy trial on Tuesday, Middletown Mayor Kenneth Branner Jr. said that the judge reaffirmed that the lease was terminated, but didn't want to comment on the next steps because the bankruptcy trial was not over.

"We don't know where it is going from here," he said. "We're happy the judge ruled that the lease was terminated, but we want to wait to comment further."

In two days of evidentiary hearings on July 21 and July 31, the town contended that a lease with Delaware Sports Complex LLC should be terminated because major default actions by the original owners were not addressed.

Attorneys for new owner Dan Watson believed the lease was still valid.

On Tuesday afternoon, Watson said that he was sorry he wasn't able to articulate certain points clearly enough in his testimony on the first day.

"This is an unanticipated setback," he said. "We are considering our options at this point."

One of the actions in question was DSC not signing a Delaware Department of Transportation recoupment agreement totaling $2.8 million based on a rate per acre within the Westown development area. The money would've paid for multiple entrances to the facility and other roadwork.

Another was a bonding requirement in the lease that said before any construction, the DSC was obligated to secure a performance bond in the amount sufficient to revert the property to be developed back to canary grass.

The town asserted that would cost $296,000.

According to Middletown Town Manager Morris Deputy, the first witness called on the second day of the evidentiary hearing, a default letter was sent by FedEx and also emailed to the original owner and his attorneys on Feb. 1. A date for the defaults to be addressed was set for March 5.

Deputy said that in the next 30 days, no recoupment agreement was signed, nor was there a bond presented. That, along with slow progress on the facility and nearly $1.6 million in outstanding debt owed to 13 creditors, prompted the Town of Middletown to file an eviction claim against DSC in court on March 17.

Buy Photo

Six fields at the Delaware Sports Complex in Middletown were game-ready, prompting owners to declare bankruptcy on the multi-million project.(Photo: Jerry Smith/The News Journal)

A Chapter 11 bankruptcy petition filed by DSC on May 23 stayed those proceedings, which were to occur May 25.

At the end of the second day of the evidentiary hearing, Judge Gross urged attorneys to include case study in their closing arguments that addressed the lease potentially being void because the certificate of formation for DSC was not filed until Feb. 28, 2017, more than a year after it entered into the lease.

"Under Delaware law, an LLC, limited liability company, is not formed until a certificate of formation is filed," he said.

In the end, that had little bearing on Gross' decision, while DSC's inability to address the defaults was the determining factor.

Six fields were completed before work stopped because of the developer pulling out and the bankruptcy filing.

"It is the Debtors’ failure to enter into a recoupment agreement that creates an uncured default," Gross said in the opinion. "The Debtor’s failure to promptly enter into the recoupment agreement based on its intention to develop only a portion of the property and to fulfill only a portion of its plan is a default which Debtor failed to cure in a timely fashion. The default renders the Lease terminated."

Buy Photo

Middletown Mayor Kenneth Branner Jr. said that he has been contacted by a number of companies that want to proceed with the sports complex on Levels Road.(Photo: KYLE GRANTHAM/THE NEWS JOURNAL)

Branner said last month that town officials were led to believe there was financing to finish the complex and everything was in place. He was disappointed when he found out otherwise.

"It was a shot in the gut when we heard (DSC filed for bankruptcy)," he said then. "We want to remedy this as quickly as possible. There is no way we won't go forward sometime in the near future."

Branner said he has already received a number of calls from interested parties wanting to talk about the use of the town-owned land for similar projects.

The mayor said Tuesday that he wouldn't discuss the town's plans moving forward until the bankruptcy hearing was concluded. No conclusion date has been set.

Watson has said on a number of occasions that if it was the opinion of the court that the lease was terminated, that would all but end his efforts from moving forward with the complex.

This story will be updated later today with comments from Branner and Watson.

Reach Jerry Smith at jsmith17@delawareonline.com. Follow him on Twitter at @JerrySmithTNJ.